Phyllis Nystrom

 The following marketing analysis is for the week ending Oct. 2.

CORN — Anything leading up to the Grain Stocks as of September 1 report was obliterated in post report trading as prices soared to their highest level since March. The U.S. Department of Agriculture may have some explaining to do to the trade after releasing an unprecedented downward adjustment to the June 1 stocks report of 205 million bushels! Many in the agricultural sector are now questioning the USDA’s methodology after two consecutive years of big revisions on this report.

This was the first year the USDA moved the review period for the previous year’s production from January up to September, which is the way soybeans have always been done. The tighter stocks number does help explain why basis levels and spreads were firm throughout the summer. Lighter test weight corn last year is being cited for the change in June stocks.

The headline to end the week was news that the President and First Lady had contracted Covid-19 and were going into quarantine. A top aide who had been traveling recently with the President had tested positive. This throws the next debate into question as we get within a month of the election. The news was a negative for end-of-the-week trading.

Report recap: September 1 stocks (ending stocks for the 2019-20 crop year) at 1.995 billion bushels were below the lowest trade estimate and a shock to the market. This is the first time since 2015-16 that ending corn stocks were below 2 billion bushels and were the lowest in four years.

This was the second-largest miss by the trade in at least 20 years — right behind last year’s 300 million bushel miss. The average guess estimate was 2.25 billion bushels and the last World Agriculture Supply and Demand Estimates report was using 2.253 billion bushels. How could this be? The USDA revised the June 1 stocks report down by 205 million bushels! Up until this year, the most they had revised a June report since 2000 was 11 million bushels. They actually increased last year’s corn crop from 13.617 billion bushels to 13.620 billion bushels — the first-ever revision on this report.

Overall, 38 percent of the stocks were held on farms and 62 percent off-farm. Where do we go from here, referring to the Oct. 9 monthly WASDE report and the 2020-21 balance sheet? There will be a smaller carry-in, but there’s no concrete forecast to what usage categories will be. The 2020-21 carryout was last predicted at 2.503 billion bushels.

As of Sept. 27, U.S. corn harvest was 15 percent complete compared to 16 percent on average. Seventy-five percent of the crop was mature, well ahead of the 65 percent average. Illinois was 13 percent harvested vs. 24 percent average, Iowa was 12 percent complete vs. 5 percent average, and Minnesota was 6 percent harvested compared to 3 percent on average.

In South America, Argentina’s corn planting is 19 percent complete vs. 15 percent on average.  Brazil’s corn planting was reported at 32 percent complete vs. 21 percent on average. 

Weekly export sales were well above pre-report estimates at 79.8 million bushels, bringing total commitments to 969 million bushels. The cumulative total is a record for this early in the marketing year and 154 percent above last year. The current USDA export forecast is 2.325 billion bushels. Through Sept. 24, China has purchased 393.7 million bushels of U.S. corn. Daily export sales announcements this week were to Japan and unknown destinations totaling 12.5 million bushels. 

Weekly ethanol production fell 25,000 barrels per day to 881,000 bpd. Stocks were down 300,000 barrels to 19.7 million barrels. Margins fell 2 cents to 7 cents per gallon. Average gasoline demand over the last four weeks at 8.5 million bpd is down 8.9 percent from last year.

Outlook: December corn’s next upside target is the high from March at $3.86.75 per bushel, then $4.04.75 per bushel. However, as we head into the thick of corn harvest, we could likely see some pullback. The October WASDE report on Oct. 9 will be closely watched to see how the USDA changed the 2019-20 usage categories and how this translates into the 2020-21 balance sheet.  Watch both U.S. and South American weather, U.S. yield, and Chinese demand to drive price direction over the next few weeks.

For the week, December corn rallied 14.5 cents to close at $3.79.75 (this week’s high was $3.85.5), July was 16 cents higher at $3.98.5, and December 2021 gained 7 cents at $3.91 per bushel (high this week was $3.96).

SOYBEANS  —  The Sept. 30 report put a spark under soybean prices on lower-than-expected soybean stocks as of Sept. 1 and in sentiment with the corn market. China began their Autumn Festival/Golden Week celebrations which will run through Oct. 7. We could still see business being done, but nothing huge is expected. There were rumors that a few South American soybean cargoes for January/February were being switched back to the United States.

The Grain Stocks as of September 1 report (ending stocks for the 2019-20 crop year) were smaller than anticipated at 523 million bushels. The average trade guess was 576 million bushels and the September WASDE report used 575 million bushels. This is still the second-largest ending stocks number since 2005-06. On-farm stocks accounted for 27 percent and off-farm stocks 73 percent of the total. With a reduced carry-in for the 2020-21 crop year, there is a smaller margin for South America to have a crop problem. The USDA didn’t make any revision to 2019-20 soybean production, leaving it at 3.552 billion bushels. The trade was anticipating a small increase to 3.575 billion bushels.

Dryness in South America has been creeping up on the radar. Brazil does have rain in their forecast in the coming week (which will be welcome) and 25 percent of Argentina is dry. Much of Brazil has received or will receive less than 25 percent of normal rainfall from Sept. 15 through Oct. 10. Temperatures are expected to be above average.

Argentina will reportedly cut their soybean export tax 3 percent to 30 percent into January to encourage growers to part with soybean inventories. It’s estimated growers are holding 40 percent of last year’s crop as a hedge against inflation and the 3 percent reduction in taxes isn’t expected to generate much interest from growers. That would put their current holdings at 21 million metric tons or 771.6 million bushels. The government wants to generate revenue and foreign reserves. Brazilian farmers are essentially sold out of old crop soybean supplies; but are believed to have sold 60 percent of the crop they are just beginning to plant.

U.S. soybean harvest as of Sept. 27 was 20 percent complete compared to 15 percent on average. Seventy-four percent of the crop was dropping leaves, ahead of the 69 percent average. By state, 11 percent of Illinois was harvested vs. 16 percent average, Iowa was 30 percent complete vs. 8 percent average, and Minnesota was 31 percent complete vs. 18 percent average.

Weekly exports sales surpassed estimates at 95.2 million bushels. This brings total export commitments to 1.4 billion bushels or 66 percent of the USDA 2.125 billion bushel outlook. This is a record total commitment for this time of the marketing year and up 169 percent over last year. China had 757 million bushels of U.S. soybeans on the books for this marketing year through the Sept. 24 reporting period. There was only one announced soybean sale to China during the week that ended Oct. 2 of 9.7 million bushels. Even though they are celebrating their Autumn Festival/Golden Week from Oct. 1-8, trading offices will still function. We just don’t expect any huge purchases during that week. Total export sales announcements this week included Mexico, Egypt, China and unknown destinations. 

Outlook: The November soybean contract high set in September is $10.46.75 per bushel and will be the first resistance level, then $10.71 per bushel. Support comes in at $10.15 per bushel. South American dryness will take on added importance after a dry September there. With the demand appetite out of China, we don’t have much wiggle room for production snafus. Funds are carrying a large net long position, but there hasn’t been a significant impetus for them to liquidate. For the week, November soybeans jumped 18.25   cents to settle at $10.20.75, July was 18.75 cents higher at $10.20.75, and November 2021 surged 21.75 cents to $9.70 per bushel.

Nystrom’s Notes: Contract changes for the week as of the close on Oct. 2: Chicago December wheat flew 29 cents higher to $5.73.25, Kansas City was the leader with a 34.25-cent rally to $5.09.5, and Minneapolis managed a meager 2-cent increase to $5.31.75 per bushel.